The Stocks the Funds Are Buying

We all know which stocks have made Wall Street's Buy List. What I want to know -- and I'm guessing you do, too -- is who's doing the buying. Which funds are buying Wall Street's most popular stocks ... and how does their judgment compare with that of our Motley Fool CAPS community?

Here's our latest group of contenders:

Iteris, which is in the, um, pedestrian business of making traffic detectors, doesn't get the most love from fund managers this week, but the pair of high-rated winners that own it are simply too interesting to ignore. Allow me to introduce to you:

• Perritt Emerging Opportunities (PREOX), a tiny no-load fund that has been a market-beater since its inception in August 2004. And not just by a little: Its three-year record is in the top 1% in its Morningstar category.
• Perkins Discovery (PDFDX), which has crushed the S&P 500 by more than 10 percentage points a year over the last five years. Too bad it sports a massive -- as in "massively expensive" -- 2.50% expense ratio.

Nevertheless, I can't resist that mouthwatering record. Let's take a look under the hood of Perkins Discovery. Here are its top five stock positions:

This strikes me as an exceedingly risky portfolio. Consider I-many, which specializes in contract management software. Confused? Relax, it's mostly as it sounds. I-many's technology collects data commonly found in contracts -- i.e., start date, renewal date, amount, etc. -- and stores it so that it can be easily recalled.

Believe it or not, there's a need here. Contracts aren't broken down into tables and rows, which means they're impossible to store and manage via a classic database. And, for many firms, they need to be managed, thanks to the Sarbanes-Oxley regulations.

Nevertheless, CAPS investors have mixed feelings about this stock. Bearish All-Star chk999 points to weakness in I-many's balance sheet. But with $10 million in the bank and no discernable debt, I'm not sure that's fair.

Bullish investor NeroSagetrade is more brazen, countering:

I-many is one of the last remaining elements of the now defunct B2B era. [I-many] was nearly bought out two years ago but that deal fell through just weeks before it was to be finalized ... and dare I say, [I-many] has some momentum behind it for the first time in nearly five years. [The company] continues to provide B2B software to the medical/health sciences sector and there is a good probability that 2008 will be [its] first profitable year in a long, long time ... I think this stock could double in 24-30 months.

Strange as it might sound, I'm likely to side with chk999 in this argument. Contract management is absolutely a useful service, but too many firms offer it -- budding tweeners Interwoven (NASDAQ:IWOV) and Open Text (NASDAQ:OTEX), for example.

And yet Perkins must own this stock for a good reason, which makes it worth watching.

For me, it often helps to see what superior stock pickers are buying. If that describes you, too, then consider Motley Fool Champion Funds. Its collection of market-beaters is up 16% on their respective benchmarks as I write. Check out the entire portfolio with a free, no-risk trial.